USD/JPY: Further US dollar strengthening may slow down ahead of Inauguration Day - BTMU

Analysts from The Bank of Tokyo-Mitsubishi UFJ, see the USD/JPY pair with limited scope to the upside, ahead of Inauguration Day (January 20). They expect the pair to trade with a bearish bias next week, between 111.00 and 114.00. 

Key Quotes: 

“The JPY has been out-depreciated by only the Mexican peso over the last two weeks, despite no change in the economic fundamentals. Investors may cut their JPY long positions, further neutralizing their positions. That said, a switch to JPY short positions lacks any real supporting factors. President-elect Trump has been making a slew of policy announcements. In particular, his comment that he will pull the US out of the TPP may affect market expectations. However, his protectionist trade policy, especially regarding NAFTA and currency policy vis-à-vis the Chinese sovereign, may support the US dollar weakening. Market reactions have been relatively biased toward the US dollar strengthening.”

“Fed rate hikes for 2017 have already been priced in. Any further US dollar strengthening may slow down ahead of Inauguration Day in January. Rising US Treasury yields in particular may hurt US dollar funding conditions for US companies and financial institutions ahead of year’s end. Tighter monetary conditions could support a stronger USD, but also hurt stock market sentiment. We feel another, different post-election phase lies ahead.”